It is that form of
taxation which takes effect from a date before it is passed. Hence it creates an
extra charge by the way of amendments from a particular date in the past. Before
every financial year begins, the Finance Ministry proposes a budget which
includes plans for the next year, analysis of the previous year, revenue allocation to different sectors of the economy and changes related to tax
laws. This is basically done to plug in loopholes, analyse the developments of the
past, present and maintain the welfare of the tax payers. If the amendment in the
law, with respect to taxation occurs in the present, for a law of the past, it
brings about retrospective changes in the economy. The prospective laws are
easier to rectify and make changes. Retrospective taxation gets a little tougher
for implementing. The history of this tax
dates back when there was a dispute between Vodafone and the tax department.
It all started when the tax department sent a notice to
Vodafone asking the company
to pay capital gains tax worth Rs 11000 crore for its purchase of
Hutchison Essar telecom Company from Hutch. The dispute centred around the fact
that if an indirect transfer of property located in India can be taxed under
relevant sections or not. It results in imposition of Capital gain tax. Although after
the verdict, Vodafone didn’t have to pay tax for this
deal, the government
realised the setback it faced and loss it incurred due to such loopholes. The government decided
to amend the rule by imposing tax in 2012 with effect from 1962. This shows
retrospective tax effect. Retrospective taxation occurs in rare cases with due
diligence in such a way that only the relevant stakeholders
should be affected. It
requires transparent and exhaustive solutions.
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